Insight - California Democrats amass control over unruly state

California Governor Jerry Brown speaks at a news conference to announce the Public Employee Pension Reform Act of 2012 at Ronald Reagan State Building in Los Angeles, California August 28, 2012.

Reuters/Mario Anzuoni

SAN FRANCISCO (Reuters) - California just became a one-party state.

Governor Jerry Brown and his Democratic allies on Tuesday won a mandate that might be the envy of President Barack Obama, turning the nation's bluest state into one in which Democrats will likely have all but complete political control.

Voters approved a tax hike championed by Brown and soundly rejected a measure that would have gutted union political power. Perhaps most importantly, if initial vote totals hold in several very close legislative races as the final absentee ballots are counted, they will have handed Democrats supermajority control of both houses of the state legislature for the first time in 79 years.

Brown, who largely failed to gain cooperation from Republicans over the last two years, now owns the field. He has the opportunity to overhaul the tax code, reform the Byzantine governmental processes that have hobbled Sacramento for decades, and even potentially touch the "third rail" of California politics, the low-property-tax measure known as Proposition 13.

The ascendance of Democrats and their union backers may give more than a little pause to businesses and wealthy individuals, who now face higher taxes and the prospect of even more new taxes and regulations.

The state's top personal income tax rate was already the second highest in the nation at 10.3 percent before Tuesday's vote, and will now rise to 13.3 percent for the next seven years.

"Enabling the tax-and-spend majority in the capital to have carte blanche to heap new and unanticipated taxes on already struggling Californians gives us extraordinary concern," said John Kabateck, California executive director of the National Federation of Independent Businesses.

Brown was quick to acknowledge the need for restraint. The former seminarian cited the Biblical story of Joseph and the pharaoh at a news conference Wednesday, in which Joseph told the pharaoh to prepare for lean years in times of plenty.

"We need the prudence of Joseph going forward over the next seven years and I intend to make sure that's the story we look to for our guidance," he said.

Indeed, despite the eye-popping income tax rates, the state's overall tax burden is not exceptionally high due to low property and business taxes. The effective business tax of 5.3 percent is only barely above the national average of 5.0 percent, according to an Ernst & Young report for the Council on State Taxation.

But some in the Brown coalition did appear to have more spending on their minds.

"We have the capacity to rebuild this state," said Dean Vogel, president of the California Teachers Association, which spent $32.8 million in support of Brown's tax hike and other ballot campaigns. He cited the need to address chronic underfunding for education and clean up the tax code - which could include closing tax loopholes.

PIONEERS IN POLITICAL INTRACTABILITY

California has historically been ahead of the nation in many things - including intractable partisan political warfare. Decades of extremism in both parties left little ground for compromise, and the state's constitution allowed the legislature's Republican minority, dominated by a conservative, no-taxes wing, to block any major change.

Deals made to pass budgets have created tortuous funding mechanisms and a welter of obtuse regulations, Democrats say.

Now, assuming the vote totals hold, Democrats, with two-thirds majorities in the state Senate and Assembly, will have the power to pass tax hikes or put constitutional amendments before voters on their own.

The Senate appears likely to have 28 Democrats, one more than needed to reach two-thirds, and the Assembly is on track to have 54 Democrats, exactly two-thirds.

That supposed ease of governing contrasts with the predicament of fellow Democrat Obama. His second term begins with a Democratic-controlled U.S. Senate and a Republican majority in the House of Representatives, the same divided Congress that thwarted his agenda in the last two years.

Liberal Democrats in California were already talking about new oil severance taxes, higher taxes on commercial real estate and the end of tax breaks in so-called enterprise zones.

At the edges of many conversations was the question of whether Democrats could or would change Proposition 13, the 1978 measure that keeps property taxes low and which voters approved when Brown won the second term of his first tour as governor. He was elected to a third term in 2010.

Prop 13 is still extremely popular, but some Democrats see room to chop away at its protections for business property while maintaining the core homeowner safeguard against rising property tax bills.

TAX CRAZY?

Republicans cautioned that any such efforts would be hazardous.

"The natural inclination for politicians is to over-interpret the mandate they've been given with an election like this one," said Dan Schnur, director of the Unruh Institute of Politics at the University of Southern California, and a former spokesman for Governor Pete Wilson, a Republican.

Still, voters broke from form in approving Brown's tax hike, and clearly support more spending on education. California ranks 47th of 50 states in per pupil education spending, and if the tax measure hadn't passed, $6 billion in additional education cuts would have been triggered.

Brown, ironically, may now emerge as the conservative force in discussions with the most liberal members of the legislature.

"The governor is going to see it as his mission to keep the brakes on anybody going crazy with the money," said labour union lobbyist Barry Broad.

Moderate Republicans might be more open to join the conversation with Democrats, since it was the only way for them to be relevant, added analyst Scott Lay, a lobbyist for state community colleges.

But the supermajority gives the legislature room to ignore Brown as well - or at least override his vetoes. That's likely to put in check some of the governor's ambitions, such as a second overhaul of public pensions.

"If I'm a Democratic leader of the legislature, I'm not waking up this morning thinking 'Boy, I've got to go after public pensions,'" said Jack Pitney, professor of government at Claremont McKenna College.

Brown himself sidestepped the issue of vetoes at a news conference. "This is about celebrations, not about drawing lines in the sand," he said.